Statutory demands are creatures of the Corporations Act 2001 (Cth) (“Corporations Act”).
The Courts have interpreted compliance with the 21 day time limit very strictly.
Failure to comply with the 21 day period for compliance for a statutory demand can have very serious consequences for the debtor company.
Failure to apply to set aside the statutory demand and serve the documents can mean that your application is void.
This article explains all you need to know about the 21 day time limit for a statutory demand.
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21 day limit for Compliance with Statutory Demands
Section 459E of the Corporations Act says:
(2) The demand:
… (c) must require the company to pay the amount of the debt, or the total of the amounts of the debts, or to secure or compound for that amount or total to the creditor’s reasonable satisfaction, within 21 days after the demand is served on the company …
If a company has been served with a statutory demand then the company has 21 days after the statutory demands are served to either:
- Pay the debt (or debts) on the demand; or
- Compound for that amount or total to the creditor’s reasonable satisfaction.
To “compound” for the debt means:
To “compound” for a debt is to accept an arrangement for payment of the amount of the debt or of a different amount – Commonwealth Bank of Australia v Parform Pty Ltd [1995] FCA 1445.
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21 day limit for Setting aside Statutory Demands
Section 459G of the Corporations Act says:
(1) A company may apply to the Court for an order setting aside a statutory demand served on the company.
(2) An application may only be made within 21 days after the demand is so served.
(3) An application is made in accordance with this section only if, within those 21 days:
(a) an affidavit supporting the application is filed with the Court; and
(b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.
Section 58AA of the Corporations Act defines Court to mean:
“Court” means any of the following courts:
(a) the Federal Court;
(b) the Supreme Court of a State or Territory …
If a company has been served with statutory demands with an affidavit in support (not a judgment in support), then the company has 21 days to:
- Apply to the Federal Court or the Supreme Court for an order setting the statutory demand aside; and
- Serve a copy of the application and the supporting affidavit on the person who served the statutory demand.
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What to do if Served with Statutory Demands
If a company is served with a statutory demand then the company only has 21 days to:
- Pay the amount of the debt;
- Enter into a written arrangement with the issuer of the demand;
- Write to the issuer and ask them to withdraw the statutory demand; or
- Apply to set the statutory demand aside.
Withdraw the Statutory Demand
A company served with a statutory demand in Queensland can write to the issuer of statutory demands and request that they withdraw the statutory demand.
The issue as to whether a statutory demands can be withdrawn was settled in Australia in the case of Cempro Pty Ltd v Dennis M Brown Pty Ltd (1994) ACSR 628 and then affirmed In the matter of Chameleon Mining NL; Chameleon Mining NL v Atanaskovic Hartnell [2009] NSWSC 602.
Read our article on how to withdraw a statutory demand for more.
However, whatever a company chooses to do with the statutory demands, it must adhere to the strict 21 day time limit given in the Corporations Act.
If the issuer of statutory demands do not respond to the request for withdrawal, then the statutory demands remain on-foot, and the debtor company still needs to do whatever they intend to do before the 21 day limit.
But how strict have the Courts been in interpreting this 21 days for compliance?
Have there been any instances where strict adherence has been waived by the Courts?
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21 Day Time Limit for Compliance with Statutory Demands
Section 459F of the Corporations Act says:
(2) The period for compliance with a statutory demand is:
(a) if the company applies in accordance with section 459G for an order setting aside the demand:
(i) if, on hearing the application under section 459G, or on an application by the company under this paragraph, the Court makes an order that extends the period for compliance with the demand–the period specified in the order, or in the last such order, as the case requires, as the period for such compliance; or
(ii) otherwise–the period beginning on the day when the demand is served and ending 7 days after the application under section 459G is finally determined or otherwise disposed of; or
(b) otherwise–21 days after the demand is served.
The Courts are unable to extend time for compliance with statutory demands, absent an order contained in the decision upon the hearing of an application to set aside a statutory demand pursuant to section 459G of the Corporations Act.
This was the decision of the High Court in Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Limited [2008] HCA 9 where the Court said:
Unless the contrary intention appears in the Act, the power to extend the period for compliance is to be understood as including power to extend it even if the period has ended. But there are several features of Pt 5.4 of the Act which lead to the conclusion that a contrary intention does appear.
Broadly, the Corporations Act allows for the Court to extend the period for compliance with a time requirement under the Corporations Act.
Section 9 of the Corporations Act says:
Unless the contrary intention appears … “extend” in relation to a period … includes further extend; and has a meaning affected by section 70.
Section 70 of the Corporations Act says:
Where this Act confers power to extend the period for doing an act, an application for the exercise of the power may be made, and the power may be exercised, even if the period, or the period as last extended, as the case requires, has ended.
However, what the High Court said in Aussie Vic Plant Hire was that Part 5.4 of the Corporations Act, being the part that deals with statutory demands (amongst other things), a contrary intention did in fact appear.
In the joint judgment of Gleeson CJ, Hayne, Crennan and Kiefel JJ the High Court said:
If the period for compliance with a statutory demand has expired, the Act does not permit the making of an order extending the period for compliance.
This decision has been followed in the Queensland Court of Appeal.
In Palmer Petroleum Pty Ltd v BGP Geoexplorer Pty Ltd [2016] QCA 149 the Queensland Court of Appeal said:
If the company applies in accordance with s 459G for an order setting aside the demand, there are then two possible periods for compliance. One possibility results from an order by the court for the extension of the period for compliance. The other possibility is where the period is not extended by the court, in which case, the period for compliance ends seven days after the application to set aside the demand is finally determined or otherwise disposed of.
McMurdo JA then went on to say (with Fraser JA, Philippides JA agreeing):
There is no power to extend the period for compliance once that period has expired. The High Court so held in Aussie Vic Plant Hire Proprietary Limited v Esanda Finance Corporation Limited [2008] HCA 9. Clearly then, the period for compliance expired … at which point, the demand was still in effect and the appellant had not complied with it, with the consequence that the appellant is taken to have failed to comply with the demand.
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21 Day Time Limit to Set Aside Statutory Demands
A good place to start when looking at the 21 day time limit to set aside a statutory demand is the High Court of Australia case of David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43 who said:
The court may make an order extending the period for compliance with the statutory demand. If the company applies “in accordance with section 459G” to set aside the demand, then an order extending the time for compliance may be made.
And then went on to say:
The requirement in s 459G that the application to the court for which it provides be made only within 21 days after service of the demand … These reasons lead also to the rejection of the reliance by the appellants upon s 70 … However, the Law does not confer a power to extend the period within which an application may be made under s 459G.
Summary of the Above
If a company is served with a statutory demand, then the only power that the Court has to extend the time for compliance is pursuant to a validly filed and served application to set aside the statutory demand.
In all other cases, the Courts have held that a company must adhere strictly with the 21 day time for compliance with statutory demands.
So, this means that from the day that a company is served with a statutory demand, the company must, within 21 days do one of the following:
- Pay the amount on the statutory demand or demands; or
- Compound for that amount to the creditor’s reasonable satisfaction; or
- Get in writing from the issuer, a notice that they withdraw the demand; or
- Apply to the Court for an order setting aside the statutory demand.
Care must be taken. For example, if a company has requested that the issuer withdraws the demand, and the issuer does nothing for two weeks, then the company will only have one (1) week to make the application to set the demand aside.
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Does this Part Operate Harshly?
In Obiter in David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43, quoting Sheller JA in Re J and E Holdings Pty Ltd (1995) 17 ACSR 319, Gummow J said:
No doubt, in some circumstances, the new Pt 5.4 may appear to operate harshly … In particular … the drastic commercial consequences which may follow the issue of process for winding up and to the inability of a company, which for good reason had been late in filing or serving an application, to set aside the statutory demand.
Service of Statutory Demands over the Christmas Period
Arguably, a good example of this can be seen in J & K Homes Pty Ltd v Evans Lawyers [2017] QSC 24 where Evans Lawyers issued J & K Homes Pty Ltd with a statutory demand on 19 December 2016, meaning that the time for compliance, or the time to file and serve an application and affidavit to set aside the demand, was 9 January 2017. The defendant argued that they were disadvantaged because over the Christmas period the Courts were closed.
Citing David Grant & Co Pty Ltd the Supreme Court of Queensland said:
As the applicant did not file and serve its application within the 21 day period required, the Court has no power to make an order setting aside the statutory demand.
The serving, and subsequent compliance with statutory demands, over the Christmas period has been discussed in a number of different cases. Read:
- SV Steel Supplies Pty Ltd v. Palwizat [2007] QSC 24; and
- Bluechip Development Corporation (Cairns) Pty Ltd v PNP Realty Pty Ltd [2009] ACTSC 33.
Further, in Career Training on Line Pty Ltd v B E S Training Solutions Pty Ltd; v Buckland [2010] NSWSC 460 the issuer of the statutory demand had personally served the demand on 23 December 2009 by sliding it under the door of the registered office (identified by the ASIC current extract). The registered office was an accountant’s office. The accountant had left for the day and was not back at work until 29 December 2009, being the first business day after the Christmas break.
The question for the Court was whether the demand was served on 23 December or on 29 December. Barrett J held that:
service of each statutory demand occurred on 23 December 2009 … The filing of each originating process and supporting affidavit on 19 January 2010 (and subsequent service thereof) therefore occurred outside (and not “within”) the period of 21 days referred to in s 459G(2) and s 459G(3) … Consistently with David Grant & Co Pty Ltd v Westpac Banking Corporation Ltd, the originating process in each proceeding must be dismissed. It will also be ordered, in each case, that the plaintiff pay the defendant’s costs of the proceedings.
So even if nobody is in the office of the accountant, or the solicitor, at the address for service, if service has been performed correctly, then service is deemed to have occurred on the date of delivery, not the date of receipt of statutory demands.
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Weekends or Public Holidays
Section 36(2) of the Acts Interpretation Act 1901 (Cth) says:
If (a) an Act requires or allows a thing to be done; and (b) the last day for doing the thing is a Saturday, a Sunday or a holiday; then the thing may be done on the next day that is not a Saturday, a Sunday or a holiday.
In Kanwa Nominees Pty Ltd v ATO [2001] ACTSC 30 said:
It seems to me that it must follow that, for the purposes of determining whether this application was filed within time, the effect of s36 of the Acts Interpretation Act must be taken into account. The effect of s36 of that Act is that, although a count of 21 days from the date of service, being 19 February 2001, would indicate that the deadline for filing the application and affidavit was 12 March 2001, because that date was a public holiday in the Australian Capital Territory, the expiry of 21 days must be taken to the next working day, being 13 March 2001.
Setting Aside Statutory Demands
For an application setting aside statutory demands, the application and supporting affidavit must be filed in the Court, and then a sealed version is to be served.
In Cooloola Dairys Pty Ltd v National Foods Milk Ltd and Alait Pty Ltd v National Foods Milk Ltd [2004] QSC 308 the Supreme Court of Queensland said:
The authorities establish that the copy of the application served on the respondent must be such as to show that it is a replication of the application which has been filed in the court. To do that it must show the action number given it by the court and it must show the return date for the hearing of the application. It must, also, I think, show the seal of the court to indicate that there are curial proceedings on foot.
In Dominion Capital Pty Limited v Pico Holdings Inc [2001] VSC 458 the Court said:
In my opinion, the Court has no jurisdiction to hear the application when it and the supporting affidavit have not been effectively served “in accordance with” the requirements of s.459G(2) and (3)
In Complete Windscreen Service Nominees Pty Ltd v Nielsen and Moller Windscreens Pty Ltd (1995) 121 FLR 178 the Court decided that an application to set a statutory demand aside filed and served within 21 days, but the affidavits filed and served outside the 21 days, was not valid. They said:
If the steps contemplated by s 459g are not taken within the 21 day time period, it may be said that there is no application under Pt 5.4a, and accordingly no question of defect or irregularity falls for consideration.
The authorities show that an application to set aside statutory demands, and accompanying affidavit must be filed in the Court, sealed with the Courts seal, show the matter number given it by the Court, and include the return date for the hearing.
Then, this version is to be properly served on the issuer of the statutory demands – all within the 21 day time limit for it to be effective.
Failure to do so within 21 days, and the company will be presumed to be insolvent.
If the application to set aside is filed and served before the 21 day time limit, the clock stops running until the Court gives its judgment.
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Abuse of Process and Failure to Comply with Statutory Demand
In some instances the Courts have allowed injunctive relief if the debtor company can successfully prove that the issuance of statutory demands was for an improper purpose, and is an abuse of process.
This still does not allow the company to file an application to set aside a demand after the 21 day period, but may allow the company to avoid the consequences of the statutory demand.
However, the authorities say that this is very difficult to do.
In House of Tan Pty Ltd v Beachiris Pty Ltd (1996) 14 ACLC 1536 Brownie J said:
(i) A court has power to dismiss or stay winding up proceedings as an abuse of process in appropriate cases … (ii) The effect of the enactment of CL Pt 5.4 is to limit the exercise of that power in cases to which CL Pt 5.4 applies … (iii) In a small number of cases, the power will still exist – although the factual matrix would need to make it clear that CL s 459S has no operation.
This article does not focus on winding up applications, however examples of cases where a winding-up application based upon non-compliance with statutory demands have been held to be an abuse of process include:
- Victorian Workcover Authority v Barroaghan Pty Ltd [2001] VSC 413;
- Pacific Communication Rentals Pty Ltd v Walker (1993) 12 ACSR 287; and
- Roberts v Wayne Roberts Concrete Constructions Pty Ltd [2004] NSWSC 734.
Failure to Comply with a Statutory Demand or Set it Aside
As you can see above, the Courts have interpreted the time limit for compliance with statutory demands, or the time to file and serve an application to set a statutory demand aside, very strictly.
If you have been served with statutory demands, it is vital that you seek legal advice and assistance as soon as possible, as time is very much of the essence.
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